IRS asset forfeiture case is dropped

By Shaila Dewan, NEW YORK TIMES

December 13, 2014Updated: December 13, 2014 7:40pm

Federal prosecutors have agreed to dismiss a case against Carole Hinders, an Iowa restaurant owner whose bank account was seized by the IRS based solely on a pattern of cash deposits, Hinders' lawyer said Friday.

"After her deposition, at which it became overwhelmingly clear that Carole was an innocent and hardworking restaurateur, the assistant U.S. attorney on the case told us that he informed the IRS that they should not go forward with the case," said Larry Salzman, a lawyer with the Institute for Justice, a nonprofit law firm representing Hinders.

Hinders was never accused of any crime. The Mexican restaurant she owned, Mrs. Lady's, did not accept credit cards, and she regularly deposited earnings in a bank branch a block away.

Victim of the law

After doing business this way for nearly four decades, Hinders was told that the IRS had seized $33,000 from her bank account after agents detected a pattern of deposits under $10,000.

Under a law designed to catch terrorists, money launderers and drug lords, depositing less than $10,000 is illegal if it is done to evade a federal bank reporting requirement, but Hinders, 67, said she never knew about the requirement.

Critics say the IRS rarely investigates such cases to see if the business owner has legitimate reasons for making small deposits, such as an insurance policy that covers only a limited amount of cash.

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Seizing assets without criminal charges is legal under a controversial body of law that allows law enforcement agents to seize cars, cash and other valuables they believe are tied to criminal activity.

The burden of proof falls on owners seeking the return of their property.

Last week, the two high-ranking members on the House Ways and Means Committee filed bipartisan legislation to curb abuses of the practice, known as civil asset forfeiture.

Civil forfeiture has also become an issue in the confirmation of President Barack Obama's nominee for attorney general, Loretta Lynch, who as U.S. attorney for the Eastern District of New York presided over a case involving more than $440,000 seized from a family-run business on Long Island.

Other cases pending

The IRS recently announced that it was sharply curtailing seizures in cases like Hinders', where there is no suspicion that the money involved came from an illegal source. But officials said they would not drop cases that were underway.

Salzman said that he agreed to halt depositions in Hinders' case when prosecutors said they would drop it, return her money and clear the way for her to recover interest, expenses and legal fees.

He wanted a "stipulated" dismissal, signed by both parties, but was unable to reach an agreement with prosecutors to include language that would declare Hinders innocent

Still at issue was whether prosecutors would drop the case with prejudice, clearing the way for Hinders to recover interest and legal costs, or without prejudice, reserving the right to reopen the case at some future time, Salzman said.